Office of the Ohio Consumers' Counsel

The Future of Energy in Ohio

An important step was taken in 2006 that could bring a reliable and affordable energy future to the state when the Office of the Ohio Consumers’ Counsel (OCC) introduced its comprehensive energy proposal. A solution will be needed for the electric market by the end of 2008 when most of the temporary plans that electric utilities have in place to determine consumer rates expire. A Diversified Energy Portfolio approach would include a multitude of energy resources while promoting the wholesale competitive market and stabilizing the cost of electricity for consumers. A Diversified Energy Portfolio is a market-driven alternative that the OCC believes can provide for a sound energy future. It can assure affordable and stable rates for residential customers, provide price certainty for businesses and allow for the construction of new generation while placing a cap on the construction costs.

This energy proposal is structured much like a financial investment portfolio where the money invested is placed into several different areas to reduce risk and achieve the maximum benefits. A mix of traditional, alternative and clean coal energy supplies, combined with energy efficiency and weatherization programs, would help reduce consumption and spread out Ohio’s energy usage. By focusing on the use of several different types of energy resources, a Diversified Energy Portfolio has the ability to bring affordability, reliability and security to the electric system.

This proposal relies on electric utilities planning for the future. To ensure that the right amount and type of energy is available, utilities would once again file 20-year demand forecast plans with the Public Utilities Commission of Ohio. The plans developed by utilities would include a mix of short- and long-term supplies that would be competitively bid to ensure Ohioans are getting the lowest costs. A portion of the supply options would need to include alternative energy and energy efficiency resources. Standards would be developed for the utilities to follow so that the appropriate mix of both would be included in their plans.

Alternative energy portfolio standard

An alternative energy portfolio standard promotes the use of renewable energy – such as wind, biofuels, solar, low-impact hydro, geothermal energy and biomass – as a percentage of the total electricity sold to customers. This type of requirement encourages energy resource diversity to support energy independence, improves efficiency and aids faster technological developments that will continue to make alternative energy affordable. The standard also provides several benefits to the environment and society by increasing the diversity of fuel sources, reducing price volatility, reducing the environmental impacts of generating electricity and bringing jobs and economic development to Ohio.

The OCC believes that 20 percent of Ohio’s electric generation can be achieved through alternative energy resources in 10 years. The target could begin with 2 percent for the first year and could increase equally by 2 percent each year. Additionally, the alternative energy would have to be generated at a newly constructed facility and meet environmental standards.

The standard would apply to all entities selling retail energy. In order to confirm that the standard is being followed, a renewable energy credit would be required. This credit provides a record of every megawatt-hour a company is either buying, generating or selling as alternative energy to provide to its customers.

To enforce the alternative energy portfolio standard and encourage the development of alternative energy resources, a penalty should be established so it becomes more advantageous for companies to comply with the standard. A $50 per megawatt-hour penalty is recommended. This also places a cap on the cost of implementing the standard.

Energy efficiency resource standard

Another important component to realizing reliable and affordable energy is reducing customer consumption through an energy efficiency requirement on electric utilities and alternative providers. Implementing cost-effective energy efficiency measures statewide offers the potential for reducing consumers’ electric bills.

A standard is necessary because traditionally, companies have had a disincentive to promote energy efficiency. Under existing regulations, utilities collect more distribution revenues if they sell more electricity. If customers use less energy because of energy efficiency, then utility companies may be concerned that they will not receive the same level of revenue. A standard will create programs that allow customers to reduce their consumption and their energy bills through rebates, weatherization and education. An energy efficiency standard would continue towards alleviating market barriers and reducing the risks associated with volatile fossil fuels; improving the overall reliability of the electric system; reducing stress on local transmission and distribution systems; and increasing energy independence.

The energy efficiency resource standard is similar to the alternative energy portfolio standard because it requires companies to prove savings are being achieved from the programs in which they participate.

The savings targets would start out low and rise incrementally over 10 years. For example, in the first year, electric companies would have to produce savings equal to 0.3 percent of their electricity sales. Additional savings would be sought each year until a total of 8.2 percent in savings of an electric company’s total sales to customers is produced in the 10th year.

The OCC believes that as policy makers from around the state begin to examine Ohio’s energy options, strong consideration should be given to a Diversified Energy Portfolio and the many positive benefits it can provide to this state and its citizens.

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